February 2019 Part II: HMBS Still Can’t Drive … 55 (Billion)

HMBS float fell as predicted to less than $55 billion in February as payoffs continue to outweigh falling issuance. Once again with just over $900 million in payoffs, and a continued drought of new issuance, total outstanding HMBS ended the month at $54.8 billion, down over $225 million from January. HMBS float has been range-bound between just under $55 billion to $57 billion for over two years. Total HMBS float will likely fall further given current trends.

As noted last week, HMBS issuance was only about $490 million in January, with no highly seasoned new issuance.

We predict continuing declines in Mandatory Buyouts in the foreseeable future. “Peak Buyout” was an echo of the peak issuance from 2009 through the first half of 2013. Much of this production has already been repurchased or repaid by borrowers. From now on, billion-dollar-plus payoff months will be the exception rather than the rule. Although many loans continue to reach their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”), Peak Buyout appears to have ended.

Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases accounted for $638 million, or about 71%, of the payoffs last month. This continues a gradual downward trend from the buyout peak in last year’s third quarter, which averaged over $750 million in Mandatory Purchases per month.

(Note: This article was republished with permission from New View Advisors, which compiled data from publicly available Ginnie Mae data as well as private sources.)